Moonbase Capital Launches US$15 Million Global Fund for SMEs

Moonbase Capital, a Spain-based search fund investment firm, has launched its second investment vehicle to support entrepreneurs in acquiring and growing small to medium-sized enterprises (SMEs) globally. The US$15 million fund is expected to invest in around 15 businesses over the next three to four years. 

The investment vehicle will be led by Moonbase Capital's leadership team, Tamer El Bahay and Tarek El Gammal, both professionals with experience in operations, finance, and investing. The second vehicle broadens Moonbase Capital’s focus to include emerging markets such as Latin America, Southeast Asia, and the Middle East. According to the company, these regions are considered high-growth markets with promising entrepreneurial landscapes. Fundraising for the new investment vehicle is set to conclude its first close by the first quarter (Q1) 2025, with capital coming from family offices and high-net-worth individuals, primarily from Europe, Egypt, and the GCC region. 

This initiative follows the firm’s first investment vehicle, which raised $10 million and backed 35 searchers, primarily in Europe.

In an interview with Inc. Arabia, Moonbase Capital's founding partners Ibrahim Abdel Rahim, El Bahay, and El Gammal emphasized the role that the Gulf Cooperation Council (GCC) and Middle Eastern markets play in their strategy. "From a fundraising perspective, the GCC and Middle Eastern markets play a crucial role in our strategy," they said. "We are working closely with high-net-worth individuals (HNWIs) and family offices in the region to introduce this innovative, high-yield, low-risk asset class as part of their investment portfolios." 

A search fund is an investment model where an entrepreneur secures funding from investors to acquire and actively manage a company. In some cases, search funds can also be supported through self-financing. When asked about Moonbase Capital’s differentiation from venture capital (VC) or private equity (PE), its leadership team described search fund investing as a mix of the two approaches.

The firm’s strategy involves small investments across multiple businesses, each led by an ambitious entrepreneur. While similar to VC in this regard, the target companies and acquisition methods more closely resemble those of PE. "We focus on low-risk, cash-generating SMEs that have established track records, often operating in stable, less glamorous industries," the management team added. 

Founded in 2020, Moonbase Capital aims to expand its presence in the global search fund market with this latest vehicle aimed at supporting SMEs across various markets. "Our investment philosophy is industry-agnostic, allowing us to maintain a diverse portfolio across various sectors," the management team said, emphasizing the firm’s criteria for selecting SMEs. These include earnings before interest, taxes, depreciation, and amortization (EBITDA) between $1-5 million, recurring revenues, high margins, and low dependency on capital to grow. 

Moonbase Capital sees strong potential for growth and innovation in emerging markets, particularly in the Middle East- as the management team noted, "We are seeing interest in search funds from young family office managers in this region, where the asset class is not as common as in North America and Europe."

"While we haven't seen many search fund entrepreneurs yet [in the Middle East], this is likely because the asset class is still relatively unknown," the leadership team added. "We plan on evangelizing this alternative route to entrepreneurship in the Gulf region."

The firm also aims to drive awareness about the benefits of search fund investing, which is still relatively novel in the Middle East, compared to North America and Europe where it is well-established. 

"Whilst there is an overall trend for search fund entrepreneurs to prioritize acquiring software or software as a service (SaaS) companies, most of the targets are traditional brick-and-mortar businesses," the management team explained. These "non-sexy" enterprises are often overlooked by other investors, making them particularly attractive for search funds seeking undervalued assets with significant growth potential.  

When asked about Moonbase Capital’s approach in the Middle East, they mentioned that while the search fund investment model remains standardized, the firm seeks to find qualified local entrepreneurs. "We only invest in search funds that have at least a third of the investors from the local market. These fellow investors bring the essential local know-how and can support the searchers on the ground as needed." 

This standardized model, according to Moonbase Capital, has contributed to its consistent track record of success. "The search fund investment model is highly standardized – this is in fact the secret to it being so successful in yielding 33 percent internal rate of return (IRR) over the last 30+ years," the management team added. They noted that regions such as Saudi Arabia and Dubai present unique opportunities due to the growing number of SMEs. "Dubai presents an interesting opportunity, as many people who started SMEs there now want to return to their home countries. These businesses could be attractive for searchers to acquire," the management team said. 

Moreover, Moonbase Capital believes that SMEs in industries such as B2B services, recurring revenue models, and those less reliant on capital for growth, will be particularly attractive targets in the region. "The criteria also includes not being dependent on capital to grow the SMEs we buy, which leads to having many of the SMEs B2B or services rather than B2C companies," the leadership team elaborated. This targeted investment approach allows the firm to maintain a well-rounded portfolio that balances risk while capitalizing on the growth potential of emerging markets.